Tuesday, November 27, 2012

The McGraw-Hill
Companies, Inc.(NYSE:MHP) has agreed to sell its education wing to Apollo
Global Management LLC in lieu of $2.5 billion. This contract will take CEO
Harold Terry McGraw III one step closer to taking apart his 124 year old
company.

The transaction is
predicted to wrap up by the end of this year or by the beginning of 2013, as
revealed by the company in a statement. Over a year ago, McGraw Hill had
declared its plans of splitting its business into two, one of which would be
focusing on educational publishing and the other one on financial operations of
the company, including Standard & Poor’s, the largest credit rating company
in the world.

The sales of education
business have shot down in seven of the previous 8 quarters as states and
cities have decided on cutting down school budgets for textbooks. Apollo was
co-founded by Leon Black over 20 years back. It is purchasing the division as
the industry reinvents its way of publishing contents.

The unit is switching
to a more subscription-based business model that would have more predictable
revenues and could conceivably have better productivity since one could
eliminate the expenses of manufacturing and inventory, as told by a Piper
Jaffray analyst, Peter Appert. He said it is all about figuring out methods of
distributing content and broadening its appeal in the market.

The education division
has reported sales of $2.3 billion previous year and publishes in over 65
languages. McGraw Hill has weighed a sale of the business since the previous
year, when hedge-fund shareholder Jana Partners had offered a strategy for
breakup.

McGraw Hill has been
performing poorly since quite some time and has traded at a considerable
discount, as told by Jana in August of 2011.

Appert said that most
shareholders looking at the pure-play new McGraw Hill perceive a business that
has better margins, better returns on capital and stronger free slow of cash
than the education business does.